LORD TURNER: 'We may be at a turning point in the nature of capitalism'

Lord Adair Turner, the former vice chairman of Merrill Lynch
Europe and ex-head of the Britain's financial watchdog, is
"increasingly worried" that advances in technology are
undermining capitalism and stopping the global economy recovering
from its "post-crisis malaise."

In an interview with Business Insider, Lord Turner said: "We have
an economic malaise where the capitalism system is not delivering
as well or to enough people to maintain its legitimacy.

"There’s a certain sort of equality of citizenship that requires
that everybody does OK. I think that may breakdown. I think it
may breakdown because of the fundamental nature of technology.
You have to be aware that the way that capitalism works will vary
depending on the different stages of technology that we’re in."

'Huge returns for them and relatively low and precarious returns
for an increasing percentage'

Lord Turner ran the Confederation of British Industry (CBI) in
the mid-1990s, before becoming vice chairman of Merrill Lynch
Europe from 2000 to 2006. He then served as head of the UK's
former financial watchdog the Financial Service Authority from
2008 to 2013, taking the jobs on the eve of the global financial
crisis sparked by the US mortgage-backed securities bubble.

Lord Turner is now chairman of George Soros' economic think thank
the Institute for New Economic Thinking and this year authored
"Between Debt and the Devil" on the global financial crisis.

He told Business Insider that businesses like Facebook, Uber, and
Airbnb are focusing huge amounts of wealth in the hands of
relatively few people and generating fewer jobs than previous
technological breakthroughs. This is undermining the fundamental
promise of capitalism that advances in technology and the wider
economy will bring some benefit to everyone.

He said: "Look at Facebook — it now has a market cap of about
$370 billion. It only employs 14,000 people and it had to do very
little investment in order to get there. The reason is this
technology has this extraordinary feature that once you develop
one copy of software, the next billion copies don’t cost you
anything.

This information and communication technology enables huge wealth
creation with very little investment for some categories of
people in the economy and creates jobs that are very low pay for
others

"There’s zero marginal cost of replication. That is just
completely different from the world of electromechanical
machinery. Once Henry Ford had built one factory, if he wanted
another he’d have to build it all over again. He had to put in
lots of millions of stock."

Lord Turner says: "The problem is this: I think we probably are
on the verge of a wave of automation and robotisation and the
application of big data etc., which will tend to create an
economy of huge returns for the people clever enough to create
the software, do the big of data analytics, create the computer
game, create the new business model or the data system that sits
at the centre of Airbnb or Uber.

"Huge returns for them and, for a variety of reasons, relatively
low returns and precarious returns for an increasing percentage
of the population."

'One of the things is it does seems to be driving inequality'

Multi-billion dollar tech platforms like Airbnb and Uber pitch
themselves as part of the "gig economy," which they say helps
people earn extra money through either flexible work or renting
out their assets.

Employment
lawyer Nigel MacKay speaks to the media after Uber lost a
tribunal case on the employment rights of drivers at the Central
London Employment Tribunal Service.Victoria
Jones PA Wire/PA Images

Lord Turner says: "I think we’re just at the beginnings of
understanding what deep things this [technological change] does.
One of the things is it does seems to be a driver of inequality.
This information and communication technology enables huge wealth
creation with very little investment for some categories of
people in the economy and creates jobs that are very low pay for
others."

Lord Turner thinks this tech-driven inequality has contributed to
the popular resentment for elites and mainstream politics that
drove the Brexit vote and support from Donald Trump in the US
elections.

He says: "I think we may be at a turning point in the nature of
capitalism. Our assumption for the last 200 years has been that
although there are ups and downs year by year, broadly speaking
decade-by-decade capitalism delivers an increase in GDP per
capita and although it’s not an equal system, some people do
better than others, on average over a couple of decades everybody
does OK."

'I am increasingly convinced and worried there are more
fundamental forces at work'

Lord Turner suggested that a solution the tech-driven inequality
could be a universal basic income — a flat wage paid to all
citizens that is enough for them to live on. Experiments with
this are being
carried out in Holland and
Kenya.

An alternative could be that the government ensures people are
paid a "living wage" for essential human roles such as health and
social care, Lord Turner says.

He told BI: "There are many jobs that we need to do in our
society, care etc., that you can’t automate and you wouldn’t want
to automate. They need to be done but it may be that if you leave
those entirely to the private sector or the state in trying to
buy them, using competitive bidding processes to continually
drive the price down, those things where we do need people to do
the job will be at rates so low that it doesn’t give people
enough income and dignity.

"Does that mean that we just have to accept that the state has to
say through the social care system and health care system it’s
going to employ people and pay people at a rate which it
considers reasonable — a living wage or whatever — rather than at
the lowest rate at which it can put it out to competitive
bidding?"

But Lord Turner added: "I think it’s a fundamental social issue
that we will increasingly have to debate and I think we don’t
really know what the policy levers there are."

Lord Turner believes that finding a solution to the problems
presented by the new tech economy are essential not just to
repairing global trust in capitalism but also in repairing the
global economy itself.

Lord Turner argued in his book, "Between the Debt and the Devil",
that the global economy's painfully slow recovery from the 2008
crisis has been caused by the huge debt overhang created by a
half century of loose credit conditions in the run up to the
crash.

But he told BI: "Whereas soon are 2008 I felt our problem was
fundamentally just an enormous debt overhang generated by an out
of control credit boom, I am increasingly convinced and
increasingly worried that there are some more fundamental forces
at work which is why it’s taking so long to get out of, and why
we’re still not out of, this post-crisis malaise."